I’m worried about all the recent bad news and talks of a recession, what should I do?
First step, take a deep breath.
It is important to recognize that the economic pullback we are experiencing is driven by a health pandemic that will resolve itself over time and not a financial one. Therefore, our first action should be to take care of our physical, mental and emotional selves. My recommendation. Stand up. Stretch. Close your eyes and take a deep breath, exhale and clear your head.
Now let’s get to work on a plan for ourselves and our families.
I am not in the prediction business, but let’s assume for a minute that we are heading into a recession. A recession typically occurs when there’s a significant decline in economic activity as consumers and businesses spend less money. What is likely to happen after the recession alarm is sounded? Typically, we see action from our government and elected officials. We are already seeing this play out. The Federal Reserve (our nation’s central bank) has slashed interest rates and offered a fiscal stimulus. President Trump and Treasury Secretary Mnuchin are in talks of providing a direct cash stimulus to Americans and have pushed back the Tax Filing deadline. Congress and the Senate are in the process of passing the largest economic stimulus package in history aimed at keeping individuals and companies afloat and viable during this temporary and self-induced recession. The goal is to keep the economy afloat until we are all able to go back to work and resume our lives.
Most Americans’ worries about a recession are driven by the fear of job loss, not the loss in their 401k plan or other financial assets. Every other day it seems like the stock market toggles between record gains and losses, but if recessions in the past have shown us anything, it is that over time, the markets will rebound well ahead of when we know the coast is clear on recession fears and news. Historically, the longest lasting aftermath of recessions for everyday Americans has been the impact of job loss or diminished income. A typical recession lasts about 18 months. Some and we think this will be the case, are much shorter.
We are not speculating that everyone will lose their jobs; far from it, but, it’s prudent to consider the possibility on a short term basis and take steps to better prepare yourself for this risk.
The first step would be to assess your current financial picture. Take account of the money coming in and going out. How would this change if you faced a decrease in hours, or an actual loss of job? Start to review and find things in your current budget that could be scaled back or removed altogether.
Let’s think inventively for a moment. The government is contemplating and undoubtedly will send out stimulus money to Americans. If you need it for basic necessities, then spend it. But, if you don’t immediately need it, consider starting your emergency savings here. Another tip is to review your past credit card activity. Many companies offer a listing of recurring, automatic debits for things we buy (subscriptions to gaming or music providers, etc.). You might be able to reduce or eliminate some charges for services you really don’t use. Reach out to your lenders to see if they are offering some assistance programs. I know a number of local banks and credit unions are offering ‘skip pays’ on loans. Lastly, while the IRS is allowing you the chance to delay paying your 2019 taxes, if you are due a refund you should file immediately and use this to help cushion your emergency savings.
Additionally, many of us are working from home and have children who may be at home due to school closures. To keep everyone happy, you need a way to keep the kids from getting bored. What activities can you do around the house with things already there? Break out a deck of cards and teach them your favorite games. And because all kids are hungry most of the time, teaching your children to cook can be a rewarding and educating skill that can create memories and help save you money in the long run.
What about your retirement accounts? If you are stressed out by the current economic forces at play, the best advice would be to leave them alone. Better yet, do not look at the statement and turn off the talking heads on TV. Most accounts have auto-rebalancing features (meaning they are actively buying and selling the funds in your account to keep them in alignment with your long-term goals) which can take some of the emotional stress and guesswork out of running your finances. If you are still working and contributing to your retirement account, think of this as a method of dollar cost averaging (using the same dollar amount, generally monthly, to make investments, regardless of what is occurring in the financial markets) into your investments at low prices. If you are at or near retirement, now is not the time to panic. The losses that have occurred in markets up to this point are on paper. It is not until you sell that these losses are realized.
Lastly, get creative – both inside and out. Now is a great time to focus on networking and reconnecting. If the fear of job loss is keeping you up at night, reach out to friends, colleagues and like-minded professionals. Network to create a pool of people to reach out to in the event your place of employment is forced to lay off employees. Stress can impact your home and work life, so let’s find a way to combat it. Just as networking and reconnecting can create social interactions that can help distract you in times of distress, look within for new inspiration. Could you speak with your employer about an opportunity to be cross-trained, making you more valuable to the company? Is there a hobby or skill you have been wanting to learn? How about the book that has been sitting on your nightstand for months? I would encourage you to find a healthy way to distract yourself from the stressors in your life. We are not ignoring them, but once we have a plan in place there is no need to constantly revisit the things outside of our control.
Having a plan means having control which leads to peace of mind.
Personally I hope and believe that we will collectively learn some new things as a result of this crisis and that America and the world will be wiser and better prepared to handle future challenges that could be even more threatening to our lives and to our relatively fantastic way of life. I know I appreciate more what I had now after seeing how fast it can change.
Remember the old Persian phrase translated many times in many languages “ This too shall pass” , but let us not forget the lessons of today.